August 3, 2020

Volume X, Number 216

August 03, 2020

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340B Program-Participating Hospitals Object to CMS’s Proposed Cuts to 340B Program Reimbursement: CMS’s Recent Information Collection Request

Information Collection Request. On November 27, 2019, 340B Health, a nonprofit membership organization comprised of hospitals and health systems that participate in the federal 340B drug pricing program (“340B Program”), submitted comments (“340B Comments”) to Seema Verma, the Administrator of the Centers for Medicare & Medicaid Services (“CMS”), objecting to an announcement by CMS on September 30, 2019, which proposed an information collection request (“ICR”) to survey the drug acquisition cost data for hospitals participating in the 340B Program.

According to CMS, the purpose behind the ICR is to determine the actual cost paid by 340B Program-participating hospitals to purchase discounted drugs under the 340B Program in order to decrease the Medicare reimbursement rate for 340B Program discounted drugs to the average drug acquisition cost for 340B Program-participating hospitals. As described in its comments to the CMS announcement, 340B Health strongly objects to CMS’s attempts to make further reductions in 340B Program reimbursement and, in turn, objects to the ICR as a part of CMS’s efforts to find the data necessary to support such reductions.

Background: The Final Rule and AHA v. Azar. As we have discussed previously, in 2017, CMS issued a Final Rule, which decreased the reimbursement rates for participating hospitals acquiring drugs under the 340B Program from 6% above the average sales price to 22.5% below the average sales price. Interested parties sued to enjoin the enforcement of the Final Rule. On December 27, 2018, the United States District Court for the District of Columbia issued a decision in the case of American Hospital Association, et al. v. Azar, No. 18-2084(RC) (D.D.C. December 27, 2018) in which it ruled that the Department of Health and Human Services (“HHS”) lacked the authority to reduce the statutorily defined payment rates for 2018 by nearly 30%. As result, District Court Judge Rudolph Contreras granted the Plaintiffs’ motion for a permanent injunction to stop the enforcement of the Final Rule as to 2018 340B Program reimbursement. Most recently, on May 5, 2019, the District Court confirmed the 2018 decision and applied its reasoning to 2019 340B Program reimbursement rates. American Hospital Association, et al. v. Azar, No. 18-2084(RC) (D.D.C. May 5, 2019).

The ICR and its Rationale. The ICR requires 340B Program-participating hospitals that participated in the program between October 1, 2018 and March 31, 2019 to supply their average acquisition cost for drugs acquired under the 340B Program during this timeframe.

CMS’s rationale for the ICR is that the D.C. Circuit Court, in reaching its above referenced decisions, had in part reasoned that CMS had not collected the necessary data to set the proposed 340B Program payment rates based on acquisition costs. Consequently, in its ICR announcement, CMS expressed that, in the event of an adverse outcome on appeal, it wants to start collecting drug acquisition cost data for 340B Program-participating hospitals in order to set appropriate payment rates based on the actual cost for the drugs acquired under the 340B Program.

340B Health Objections; The 340B Comments. As set forth in its Comments, 340B Health strongly opposes the ICR and the proposal to reduce the Medicare reimbursement rate to the average acquisition cost for 340B Program-participating hospitals. In addition, 340B Health’s Comments urge CMS to withdraw its proposal for the following reasons:

  1. Reducing the Medicare reimbursement rate to the average acquisition cost for 340B Program-participating hospitals will undermine the 340B Program and harm safety-net hospitals and the low-income and rural patients served by them since the 340B Program is structured so that the amount saved by 340B Program-participating hospitals through drug discounts is used to fund additional care and services for low-income patients.

  2. CMS’s proposal to collect acquisition cost data from 340B Program-participating hospitals violates the Medicare Statute because while the statute grants CMS authority to survey drug acquisition costs for hospitals through an ICR by using a large, representative sample of hospitals, the statute does not provide for conducting a survey for a subset of hospitals, such as 340B Program-participating hospitals only.

  3. CMS’s proposal to collect acquisition cost data from 340B Program-participating hospitals violates the Paperwork Reduction Act of 1995 because: (i) the data collected is unlikely to be reliable or accurate due to human error in calculating “hundreds of thousands of units of data”; (ii) the lack of clarity of the survey instructions; and (iii) CMS failed to minimize the burdensome collection of the data.

Only time will tell whether 340B Health’s objection to the proposal will have an effect on whether CMS implements the ICR. If the ICR proposal is adopted, the data collection period will be from February 17, 2020 through March 16, 2020.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume IX, Number 347


About this Author

Kenneth Yood Healthcare Attorney SheppardMullin

Ken is a partner in the Corporate practice group in the firm's Los Angeles office. Chambers USAranks him highly for Healthcare, where he was commended for his "broad-based ability in the regulatory area." Clients appreciate that "his explanations are clear, and he understands the business side of things," notes Chambers 2016.

Areas of Practice

Ken represents a wide range of healthcare providers and healthcare companies, including specialty and general acute hospitals (including local district, nonprofit and...

Melissa Gertler, Sheppard Mullin Law Firm, Corporate Law Attorney, Century City

Melissa Gertler is an associate in the Corporate Practice Group in the firm's Century City office.